Why Microsoft’s new Office 2013 license may send users to Google Docs

When your PC dies, so does your Office 2013 license.

If you buy a perpetual retail license for Office 2013, it will be locked to the computer you first install it on, forever. Buy a new PC and you won't be allowed to install your existing copy of Office on it, even if you wipe the disk of the old PC. You'll have to splurge for a new one.

This is a change in policy from Office 2010. Office 2010 permitted a transition from one PC to a new one. It's not, however, an entirely new policy: OEM pre-installed versions of Office (and Windows) are similarly tied to their (OEM) hardware and can't migrate. Adam Turner at The Age first pressed Microsoft for clarification over what its "single PC" constraint actually meant, and he noted the newly aligned OEM and retail licenses.

It's difficult to see the wisdom in this change. It's not a big change, but it's not a nice one, either.

Retail sales make up a minority of the Office business. Microsoft doesn't habitually report the exact level of retail sales, but we can perhaps make estimates based on the information the company does provide.

The Microsoft Business Division (MBD), the reporting group within the company that includes Office, Exchange, SharePoint, Dynamics, and Lync, reported last quarter that 60 percent of its revenue is from multi-year subscriptions—Software Assurance plans. The remaining 40 percent is what Microsoft calls "transactional;" one-off purchases, encompassing both OEM preinstalls and boxed copies bought online or in bricks-and-mortar stores.

The company's 2012 annual report also has some useful information. The report says that in its 2012 financial year, 80 percent of its sales were to businesses, 20 percent to consumers. A reasonable inference is that business sales include essentially all of the multi-year revenue (as it is only this year that Microsoft offered a consumer-oriented subscription, Office 365 Home Premium), and about half of the transactional revenue.

In the annual report, Microsoft also emphasizes that while the 80 percent of business revenue is relatively consistent, driven primarily by the number of information workers, the 20 percent is much more dependent on the broader level of PC sales and product launches. This in turn suggests that a significant proportion of it is made up of OEM sales, for which there's been no relevant licensing change.

One final data point: Windows division reports that around 75-80 percent of its revenue comes from OEM sales.

Even optimistically, retail revenue is unlikely to account for more than 20 percent of MBD revenue, and it might be a lot less. If MBD's transactional revenue has the same level of OEM sales as Windows, it would mean that retail sales were no more than 10 percent of revenue. It's a nice business, but it's not Microsoft's major money-maker, and it's not representative of the majority of Office customers.

It's spectacularly unlikely that this licensing change is going to increase that revenue in any meaningful way. It's also unlikely to make any material difference to many people. The only people who would be impacted are those who migrate software between systems, and while that's common among enthusiasts, it's probably not mainstream: the mainstream solution is to buy an OEM preinstall license, or buy retail Office alongside a new PC, use that PC for 5 years (or more) until it no longer works, then throw it away and repeat the process.

Transplanting software from one machine to another (or invoking Ship of Theseus-like questions over when an upgraded PC becomes a new one) is something for enthusiasts—perhaps explaining why the OEM license restrictions have for the most part been shrugged off—and even if Microsoft managed to generate some extra sales to those enthusiasts, it's never going to amount to very much.

But that is arguably missing the point. The software giant is penalizing a small, typically vocal group of users and provoking many column inches of complaint. This is a change that looks bad. It makes Microsoft appear petty and small-minded, determined to wring every last dollar from its customer base. And while that may in fact be the case, doing so in such a brazen manner does nothing more than get people's backs up.

The underlying reason for the change is almost certainly not any direct revenue generated by additional sales. Rather, it's yet another incentive to buy an Office 365 Home Premium subscription. The $99 a year subscription lets you use Office 2013 on up to five PCs, and those licenses float; you can decommission old PCs and move licenses to new ones as necessary. That's the carrot; the stick is the price hike and additional restrictions on perpetual licenses.

The problem is that there are plenty of customers who reject the subscription model out of hand, either because they find an overt rental model offensive or because they don't place much value in having the current version of the software and hence find occasional perpetual licenses to be more cost effective. The retail license change doesn't fundamentally alter that calculus for those users. It just makes clear that Microsoft doesn't really like such users.

So they probably won't flock to Office 365. What they might well do instead is download LibreOffice 4 or switch to Google Docs—moves that hurt Microsoft far more than simply moving an Office install from an old computer to a new one. Those enthusiasts could take the mass market with them. It's happened before, with Firefox and Chrome. It can happen again to Office. Licensing changes that alienate users make that only more likely to happen.

331 Reader Comments

would say this is a big deal to me except Microsoft hasn't released a new version of Office for Mac.

Microsoft overall needs to completely change their licensing for Windows and Office. Simplify it a ton.

One license type for consumersOne license type for businesses.Then have premium up-sells for any one who needs premium features.

Use volume to determine price.

Associating with an account with fine if it means tons of flexibilty

Then let people associate any license with their setup. Be very strict about using exactly the number of licenses you own but with no specific PC rules. Disable the PC until you buy a key. Or let someone get a 365 or future family Windows license. Then it dials home and confirms you own enough and releases the system.

If you're a business and you get windows with a PC you can enter the key into your volume center and add that license in a big pool for a corporate build. No buying HP PCs and eopen keys seperately.

As a .NET developer with an MSDN subscription, even I won't be installing this on my newly formatted hard drive - and I get it for free. Why not tie office (and other MS software) to your live account? In a world where most people have multiple computing devices, this just doesn't make any sense to me especially when a very competitive Google Docs is out there for free.

As a .NET developer with an MSDN subscription, even I won't be installing this on my newly formatted hard drive - and I get it for free. Why not tie office (and other MS software) to your live account? In a world where most people have multiple computing devices, this just doesn't make any sense to me especially when a very competitive Google Docs is out there for free.

Why should I have to have a live account when all I want to do is perform some spreadsheet magic and create come content in word?

Microsoft overall needs to completely change their licensing for Windows and Office. Simplify it a ton.

Aside from the subscription part - I do like that the Office 365 licenses really are very simple to manage.

Log in on a machine. Its now attached to that license.Want to separate them? Just do so on the website. (Machine doesn't need to exist anymore)And you can see which license is allocated to which machine.

Microsoft wants to push more users towards a subscription based license, which is Office 365, except Microsoft forget that this is not 2003 anymore!.

There are many alternatives now for Microsoft Office like Open Office with IBM Lotus, Libre Office, and Google Docs. Microsoft needs to put more incentives with Office 365 for the end users, if it really wants to maintain it's current market share.

The bigger problem with Google is the huge learning curve involved in learning how to use each one of their products.

Personally, I would like to see an Ars article about the learning curve involved in using only google products. i.e. 1. The 10 different interfaces to Gmail at any given point in time -- from Android to Google Chrome. 2. The inconsistencies in where the settings button is in their apps.3. The difficulties in sharing sending documents.4. The HUGE tootlbars they impose on you on each one of their websites.

Before I recommend someone to use Google products (which I use all the time), I have to make sure that I don't have to spend an exorbitant amount teaching them how to use each one.

Just when you think you've seen it all as a .Net developer, this happens.

So now, if I am working on a 2 year old workstation that I might be upgrading in the next 6 months, I couldn't even immediately buy Office 2013 even if I wanted to with the only alternative being buying two licenses. Great work, let's tie computing hardware cycles with business tool cycles when the two aren't even remotely related or synchronized.

It truly is amazing how such a large company, and one that I make a living with, continually makes decisions that I couldn't dream up in my worst computing nightmares.

There are many alternatives now for Microsoft Office Open Office with IBM Lotus, Libre Office, Google Docs. Microsoft needs to put more incentives for Office 365 for the end users if it really wants to maintain it's current market share.

Except, no, there's really not. MS Office is the de facto standard for business documents. Interoperability between Office and its alternatives is still sketchy--collaborating on a complex spreadsheet or presentation requires everyone be using the same application. Problems range from formatting errors and different typefaces all the way up to random application crashes on import.

If you work in a vacuum, using an alternative is fine. If you work at a real company and have to share documents with other companies, though, it's Office or nothing. There is no viable alternative that works reliably and consistently..

As long as it remains technically possible to move Office 2013 to a new PC (even if it's via a call to the 800# and a sob story about having had to replace a dead motherboard), I suspect that these new license terms will be flagrantly violated just as regularly as OEM Windows licenses are.

Why would I ever sign up for Office 365? I'm still using Office 2007. I bought it because the then-new graphing engine in Excel was infinitely better than anything else on the market at the time. It still serves my modest needs perfectly.

Microsoft wants $99 a year for Office. I upgrade Office about every decade. I'm not going to pay them $999 for a software product that currently costs me $129.

The Office 2013 lockout is aimed at buyers who don't upgrade. As Peter said, it looks really bad, even if it affects a tiny number of people. As one of those people who *is* impacted, I'm planning to upgrade -- to Office 2010.

After that, MS can go hang. I'm not paying $129 for a single license tied to a single PC. I'm not paying them $99 a year for products whose functionality can be replaced when O2010 won't cut it anymore.

As a .NET developer with an MSDN subscription, even I won't be installing this on my newly formatted hard drive - and I get it for free. Why not tie office (and other MS software) to your live account? In a world where most people have multiple computing devices, this just doesn't make any sense to me especially when a very competitive Google Docs is out there for free.

Tying personal software to a Live account makes the most sense. It can even be used as a carrot for individual consumers to migrate to Windows 8.

The premise that the licensing will move people to Google Docs is preposterous though. The same line of drivel was spouted about Windows XP's online activation requirements 10+ years ago.

The vast majority of Office licenses are businesses with volume licenses or "starter editions" included with new PCs by OEMs. Of the minority of Office licenses purchased at say Best Buy or NewEgg, even a majority of those are for small to medium sized businesses which aren't likely to be migrating to new hardware soon.

It is also likely, Microsoft is using this move to help spur new PC sales both for the industry's sake and to get Windows 8 out to consumers. After all, the consumers mostly likely to be scare by this move are the ones who are probably reaching an upgrade interval anyway (Core series CPU / Vista / Office 2007 users).

Microsoft will also more than likely issue new serial #s / cd-keys to individuals who do migrate hardware rather than unlock the activation for an existing serial #. I strongly doubt the policies stated will be so thoroughly enforced. Even Windows 8 pirates have managed to get activations in droves via the "Call MSFT Support" lifeline.

This is largely because they realize in the enterprise market they are losing a good number of license payments to companies that reallocate or sell old hardware without formatting the HDD and then reuse their volume licenses on new hardware. A single use key for consumers and phone home license requirements on volume distributions (as started with Office 2010) makes the most sense for them to track purchases and use of licenses.

hagrin wrote:

Just when you think you've seen it all as a .Net developer, this happens.

So now, if I am working on a 2 year old workstation that I might be upgrading in the next 6 months, I couldn't even immediately buy Office 2013 even if I wanted to with the only alternative being buying two licenses. Great work, let's tie computing hardware cycles with business tool cycles when the two aren't even remotely related or synchronized.

It truly is amazing how such a large company, and one that I make a living with, continually makes decisions that I couldn't dream up in my worst computing nightmares.

If you're a developer with some degree of competence, you could just run Office in a VM :-p . Then it becomes portable everywhere.

OMG how dare Microsoft take away my first sales rights! They can't do this, I have rights! What other industry doesn't let you resale your own property!

In case you couldn't tell the above was tongue in cheek, but it goes to show that if the next Xbox blocks used games sales it would just be Microsoft aligning their game licensing with their office licensing. Don't be surprised when your new Xbox breaks and takes all your existing games with it.

I can sort of understand a license being locked to one computer *at a time* (or ideally, one laptop and one desktop), but to not be able to move your license is just absurd and insulting. That's one of the most user-hostile policies I've ever seen. Keep reaching for air from the grave, Microsoft, eventually there will be nothing but dirt.

What many fail to realize is that all software "services," including Google Docs, have the same offensive business model. I would rather not rely on software that someone else is "lending" to me or hosting over the internet. Microsoft asking for payment every year is just another motivation not to use these "service" products.

I don't care a lot about not being able to resell software - I never do anyways. I'm okay with the software only being licensed for use on one machine at a time.

I'm absolutely not ok with software I bought not working anymore simply because it believes I've switched computers when I upgrade my motherboard/processor, or decide it's time to "wipe the slate clean" and do a fully clean reinstall of windows.

The premise that the licensing will move people to Google Docs is preposterous though. The same line of drivel was spouted about Windows XP's online activation requirements 10+ years ago.

While I agree this by itself won't herald a mass exodus to Google Docs or another alternative, the Windows XP activation (and constant "genuine" rechecking) coupled with Windows Vista did result in my migration to Macs.

If you're a developer with some degree of competence, you could just run Office in a VM :-p . Then it becomes portable everywhere.

Yeah, because an optimal solution to a licensing issue is carving out resources on a host just so I can run a business productivity tool because that's at "no cost" to me too right? Someone obviously has never worked in a small/medium sized business environment where every resource you have is precious.

Anyway, I’m exactly the user you’re describing, and this is the single reason I’m not buying a copy of Office 2013. I’m likely to buy a new system about a year from now, and even if I weren’t, I would still find these terms unacceptable as a matter of principle.

I’ve been experimenting lately with both Office Web Apps and Google Drive. Google Drive is winning.

I generally don't update my WIndows or Office for a year or more after the new version comes out (I'm on a Mac, and I have Windows running in Parallels for those occasions that it's required, and Office 2011 installed for those occasions that don't need some WIndows-specific functionality).

This change is stupid, but I could easily imagine Office being the most pirated program in the world (the world consisting largely of places outside the USA) and so I can see why Microsoft feels it's a change that needs to be made. It's easier to tie a license key to a hardware ID of some kind, after all.

I think this is a bad move because MSFT will find in developed countries, most will only use Office 2013 at home if their company is part of the home use program. Either that or flagrantly violating the terms for proficient users who need to upgrade.

In less copyright friendly parts of the world, Office 2013 will just be pirated (is inevitably going to happen) for home use. This piracy is probably happening already due to ensuring compatibility with the office suite.

Granted some persons will be prepared to pay the subscription model, but I would expect that to be a hard sell for persons at home who don't view a few documents here and there as being worth $99/yr. They may also be the persons who have a hard time transitioning from version to version, so they find zero value in having the most recent version of the suite.

Why should I have to have a live account when all I want to do is perform some spreadsheet magic and create come content in word?

Because Microsoft wants constant cash flow from you.

Well, that is something that they have made sure won't happen. I'll continue to use 2010 thanks to this move. I went through the bull shit that is Live for Windows when I wanted to play Batman: Arkham Asylum. Never, ever, again.

There are many alternatives now for Microsoft Office Open Office with IBM Lotus, Libre Office, Google Docs. Microsoft needs to put more incentives for Office 365 for the end users if it really wants to maintain it's current market share.

Except, no, there's really not. MS Office is the de facto standard for business documents. Interoperability between Office and its alternatives is still sketchy--collaborating on a complex spreadsheet or presentation requires everyone be using the same application. Problems range from formatting errors and different typefaces all the way up to random application crashes on import.

If you work in a vacuum, using an alternative is fine. If you work at a real company and have to share documents with other companies, though, it's Office or nothing. There is no viable alternative that works reliably and consistently..

What you´ve just described is the best of all possible reasons to archive all previous projects as PDFs and switch everyone over to a FLOSS alternative *immediately*.

Interesting article and MS's push into the subscription model (Xbox Live, Office 365, Xbox Music Pass) is really off-putting. SaaS offerings are only useful when there's a actual benefit to the additional, ongoing cost.Thus far MS hasn't delivered any added value to the subscription service in the form of constant value-added upgrades and improvements, they are only using it to gouge the customers (and alienate them). Microsoft should take a moment and look at what this practice has done to the customer satisfaction numbers for Comcast and recognize that they don't have the cushion of a government approved monopoly.

The only issue I see with the article is the assertion that casual users (the mass market) will shift to LibreOffice, Open Office and Google Docs as a result of the anger and frustration. This is one possible outcome, but MS is hoping that segment of the market is going to shift to Office Web Apps. There's a part of the MS Office strategy that is overlooked by this article. MS is hoping that those perpetual license buyers (casual users still living with Office 2003) replace their PCs and if the math of the Office 2013 subscriptions don't work they'll leave Office 2003 behind and make do with the familiar world of Office Web Apps for free instead of the alternatives mentioned above.

That said, I agree that this antagonistic move will do more harm than good at this point. Customers who might have made the switch to Office Web Apps organically will perhaps be driven to Google Docs when they buy their next Ultrabook out of sheer frustration and/or following the leadership of the technorati on the web.

What Microsoft is telling us with this move is that they don't think Office 365 Home offers enough value on it's own to win against perpetual licenses of Office 2013. That in and of itself speaks volumes.

I've always felt MS overcharged for Office. Generally speaking, I think it is great software and as Lee Hutchinson pointed out it is the defacto standard. Everyone else making an alternative is making one that is compatible with Office. That being said, it costs too much for a small business. Google docs isn't a real alternative for folks otherwise invested in a domain environment with Active Directory and exchange for email.

Office goes pretty deep and does a lot, but most folk don't use 80% of its capabilities. I'm not sure how MS would address that either because most "lite" versions of software I've encountered tend to suck.